PSAD-76-54: Published: Dec 10, 1975. Publicly Released: Dec 10, 1975.

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GAO reviewed the implementation of the concept of line-item control of contractors' independent research and development (IR&D) and bid and proposal (B&P) costs.

GAO noted that: (1) the Commission on Government Procurement studied the line-item controls developed under section 203 for IR&D and B&P costs and, in its December 1972 report, six of eleven commissioners supported a majority position which was directed toward a reduction in the administrative activities related to IR&D and B&P costs; (2) in its June 5, 1975 report, GAO suggested that the issue be resolved by a statement of congressional policy; (3) GAO recommended that the policy be based on a combination of the principles on which the Procurement Commissioners agreed and those contained in dissenting position 1; (4) if Congress desires advance cost visibility and more control than is provided under the present method, GAO believes that it is not impossible for an agency to come before Congress and outline its total requirement; (5) Congress would then have the option of putting on a ceiling or giving guidance in a committee report; (6) GAO believes that there ought to be full disclosure, and advance agreement by Congress as it considers the budget, and an opportunity to establish limitations or give directions; (7) this method would provided greater assurance that IR&D would compete with other research activities for research and development funds and would be considered along with research and development in competing with other Department of Defense (DOD) activities for DOD funding in the budget; (8) the government could also contract directly with contractors for the IR&D it wants; and (9) assuming a system of limiting payments by a statutory ceiling and entering into a special contractual arrangement for the contractor's current year's effort, there will be a need in the initial year for a special provision to provide for amending long-term contracts awarded in past years which provided for IR&D and B&P payments through overhead.